ALICE STUDY OF FINANCIAL HARDSHIP ASSET LIMITED, INCOME CONSTRAINED, EMPLOYED. UnitedWayALICE.org/Michigan. September 2014

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1 ALICE ASSET LIMITED, INCOME CONSTRAINED, EMPLOYED September 2014 STUDY OF FINANCIAL HARDSHIP UnitedWayALICE.org/Michigan

2 UNITED WAYS IN MICHIGAN Albion-Homer United Way Allegan United Way Barry United Way Branch United Way Capital Area United Way Char-Em United Way Cheboygan United Way Chelsea United Way Copper Country United Way Crawford United Way Eaton United Way Gogebic Range United Way Greater Huron United Way Greater Ottawa United Way Heart of West Michigan United Way Lenawee United Way Livingston United Way Marshall United Way Mecosta-Osceola United Way Ogemaw United Way Oscoda Area United Way Otsego United Way Plymouth Community United Way Roscommon United Way Shiawassee United Way St. Joseph United Way Tri-City Area United Way United Way for Southeastern Michigan United Way of Bay United Way of Clare and Gladwin Counties United Way of Delta United Way of Dickinson United Way of Eastern Upper Peninsula United Way of Genesee United Way of Gratiot United Way of Isabella United Way of Jackson United Way of Lapeer United Way of Manistee United Way of Marquette United Way of Mason United Way of Midland United Way of Monroe United Way of Montcalm-Ionia Counties United Way of Northeast Michigan United Way of Northwest Michigan United Way of Saginaw United Way of Sanilac United Way of Southwest Michigan United Way of St. Clair United Way of the Battle Creek and Kalamazoo Region United Way of the Lakeshore United Way of Tuscola United Way of Washtenaw United Way of Wexford & Missaukee Counties Van Buren United Way This report was powered by CMS Energy. NATIONAL ALICE ADVISORY COUNCIL The following companies are major funders and supporters of the United Way ALICE Project. AT&T Atlantic Health System Deloitte Novartis Pharmaceuticals Corporation UPS NOTE: In addition to the corporate sponsorships, this Report was made possible by the United Ways noted above.

3 LETTER TO THE COMMUNITY Dear Michiganders, We all saw the physical devastation that Hurricane Katrina brought to New Orleans in 2005, and we watched Superstorm Sandy pummel the Northeast seven years later. But the effects of other types of storms aren t always quite as clear. A decade-long economic decline capped by the Great Recession hit Michigan s communities with hurricane force, hobbling the auto industry, bruising wages, and destabilizing families statewide. No one has been hit harder by that gale than ALICE. ALICE is an acronym for Asset Limited, Income Constrained, Employed those among us who are working, often at more than one job, yet still falling behind. No matter how hard these Michiganders try, they can t get ahead; and as you will learn in the pages of this Report, all of Michigan s communities ultimately pay a price for that. There was a time in my life when ALICE was me. I grew up on a family-run potato farm, and I saw how much of their lives and energies my father and his brother put into that. But perhaps the biggest challenge we faced came in the 1980s, when my father left farming to work as a welder. Thanks to the strength of our family structure, we made it through that transition, but I saw ALICE often in those years. Without enough educational opportunities, and faced with barriers at every level, from income to child care to transportation, ALICE families struggled then as they struggle now. The magnitude of that struggle in Michigan is greater than most of us imagine. What we learned about ALICE in the process of creating this Report is startling: today, 40 percent of Michigan households earn too little to provide for basic needs, and nearly two-thirds of jobs statewide pay less than $20 per hour. Changing the lives of ALICE families in Michigan means keeping three things in mind: Michigan is vast. From our southeast corner to the tip of the Upper Peninsula is a 12-hour drive. Measuring need and providing services to households across that area including those in small, isolated rural communities is an enormous challenge. Michigan is varied. Ask out-of-staters about Michigan and they tend to think of Detroit; yet the state s geographic, demographic, and economic variety is astounding. One-fourth of the state s population lives in rural areas. One-third of the city of Dearborn claims Arab heritage, and the four-county area around Detroit boasts one of the largest Arab populations outside the Middle East. And Michigan s economy, built on a backbone of manufacturing industries, now extends far beyond that core, with major universities, a $91.4 billion agriculture industry, and a newly burnished focus on Pure Michigan tourism and recreation. Michigan was built by workers. Think of the successes driven by the labor movement in the U.S., which created phenomenal overall gains for families across the country. Michigan s goal now is to make the state more of an economic destination, rebuilding wage levels and, especially, creating more urban job opportunities for young adults people in their twenties and thirties who will be the future of Michigan s workforce. To accomplish any of this, we have to go back to our roots, to our most basic beliefs about opportunity. If two adults in a family both work full-time, should their income be enough to cover their bills? By getting to know ALICE in the pages of this Report, I hope that we can come closer to having a common language to describe the lives of this group of workers and the challenges that they face. And I hope that readers come to realize what a key role ALICE plays in all of our lives, every day teaching our children at preschool, getting food to our tables, providing the array of services that make Michigan run for all who live here. By strengthening ALICE individuals and households, we fortify all of Michigan s communities. With this Report, we look forward to taking the first significant step on that path. Sincerely, Scott Dzurka, President and CEO, Michigan Association of United Ways

4 THE ALICE PROJECT ALICE Asset Limited, Income Constrained, Employed Though we have chosen a woman s name, this population is comprised of households with men and women alike, and includes children and seniors. United Way is committed to ensuring that our communities are viable places to live and work. To do that, we promote current research, community dialogue, and data-driven policy solutions. These elements form the basis of one of United Way s broadest and fastest-growing initiatives the United Way ALICE Project. ALICE was coined by United Way in 2009 after a pilot research project looked at the low-income population in affluent Morris, one of the five founding communities which merged in 2011 to become United Way of Northern New Jersey. The original study focused primarily on data from 2007, largely before the effects of the economic downturn, known as the Great Recession, were widespread. The value of this research was immediately evident: ALICE became a part of the common vernacular in Morris, helping define a need and a focus for United Way s work. ALICE also began to appear in many grant applications, in the media, and in public forums discussing need in this wealthy community. It quickly became clear that ALICE extended far beyond the borders of Morris. In 2011 United Way commissioned a second ALICE study looking at all counties in New Jersey. That Report relied primarily on data collected in 2007 and 2010, measuring the impact of the Great Recession and offering a broader illustration of the challenges ALICE households face. The Report s findings were stark: fully 30 percent of New Jersey households earned too little to provide basic necessities, and more than half the state s jobs paid less than $20 an hour. With the forecast for low-wage jobs to continue to dominate the job market, the reality is that ALICE will continue to play an integral role in our communities for the foreseeable future. That is why ALICE has become a central part of all aspects of United Way s work. Now the ALICE Project has expanded to five additional states, with ALICE Reports being released in California, Connecticut, Florida, Indiana, Michigan and New Jersey. The baseline information established in New Jersey s 2012 study allows these new Reports to compare our progress as the country s economic conditions continue to change and, in some cases, improve. We challenge stakeholders in every state to consider the ALICE Reports and their measures as an opportunity for a new dialogue around how to make our communities viable places to live and work. As more and more states embrace ALICE, our hope is that this Report and its companions can serve as a model for the nation.

5 ALICE RESEARCH About Rutgers University-Newark s School of Public Affairs and Administration (SPAA) In developing the ALICE Project, United Way has partnered with Rutgers University-Newark s School of Public Affairs and Administration (SPAA), an educational leader in government and non-profit management and governance. Ranked 10th nationally in public management and administration, SPAA promotes an ethics-based performance approach to effective, equitable, and accountable policy implementation through its innovative and comprehensive undergraduate, professional and graduate degrees and certificate programs. The school s faculty generates knowledge and best practices in public service and administration, and collaborates with public and nonprofit sector organizations and professionals throughout the U.S. and the world. Guided by the principles of knowledge, competence, diversity, and service with an emphasis on public service values and competencies for effective performance SPAA promotes accountability, transparency, and performance in the public and nonprofit sectors. The ALICE Research Team Stephanie Hoopes Halpin, Ph.D., assistant professor at the School of Public Affairs and Administration, Rutgers-Newark, and lead researcher and author of the United Way ALICE Report Assisted by: Jeff Backstrand, Ph.D. Joanne Dick Quintus Jett, Ph.D. Cynthia Stein Lessick Jyoti Punjab Kelly Robinson, Ph.D. Minglu Wang, M.A. Jonathan Woolley and Marc Holzer, Ph.D., Founding Dean, Board of Governors Distinguished Professor, School of Public Affairs and Administration, Rutgers-Newark ALICE Research Advisory Council for Michigan Jennifer Callans, Ph.D., United Way of Southeastern Michigan David Callejo Perez, Ph.D., Saginaw State Valley University David Clifford, Ph.D., Eastern Michigan University Lee Coggin, Ph.D., Baker College of Muskegon Huda Fadel, Ph.D., Blue Cross Blue Shield Jane R. Johnson, M.A., Department of Human Services, Muskegon Joshua Long, M.S., Data Driven Detroit Barbara Mitzel, Consumers Energy Amy Palmer, M.A., Lenawee United Way Brian Pittelko, MPA, W.E. Upjohn Institute for Employment Research Greg Pordon, M.S.W., Michigan Department of Human Services, Washtenaw Peter Raurk, M.A., Michigan League for Public Policy Luke Shaefer, Ph.D., University of Michigan Bridget Timmeney, M.S.W., W.E. Upjohn Institute for Employment Research Special Thanks to Michigan Tax Advisor Marshall J. Hunt, CPA, Director, Tax Services, Accounting Aid Society

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7 TABLE OF CONTENTS EXECUTIVE SUMMARY...1 INTRODUCTION...6 I. WHO IS STRUGGLING IN MICHIGAN?...9 Measure 1 The ALICE Threshold II. HOW COSTLY IS IT TO LIVE IN MICHIGAN?...26 Measure 2 The Household Budget: Survival vs. Stability III. WHERE DOES ALICE WORK? HOW MUCH DOES ALICE EARN AND SAVE?...32 IV. HOW MUCH INCOME AND ASSISTANCE IS NEEDED TO REACH THE ALICE THRESHOLD?...40 Measure 3 The ALICE Income Assessment V. WHAT ARE THE ECONOMIC CONDITIONS FOR ALICE HOUSEHOLDS IN MICHIGAN?...45 Measure 4 The Economic Viability Dashboard VI. THE CONSEQUENCES OF INSUFFICIENT HOUSEHOLD INCOME...55 CONCLUSION FUTURE PROSPECTS FOR ALICE HOUSEHOLDS...69 APPENDIX A INCOME INEQUALITY IN MICHIGAN...78 APPENDIX B THE ALICE THRESHOLD: METHODOLOGY...79 APPENDIX C THE HOUSEHOLD SURVIVAL BUDGET: METHODOLOGY AND SOURCES...82 APPENDIX D THE HOUSEHOLD STABILITY BUDGET: METHODOLOGY AND SOURCES...84 APPENDIX E THE ALICE INCOME ASSESSMENT: METHODOLOGY AND SOURCES...86 APPENDIX F THE ECONOMIC VIABILITY DASHBOARD: METHODOLOGY AND SOURCES...89 APPENDIX G HOUSING DATA BY COUNTY...91 APPENDIX H KEY FACTS AND ALICE STATISTICS FOR MICHIGAN MUNICIPALITIES...93 ALICE IN MICHIGAN APPENDIX I MICHIGAN PROSPERITY REGIONS BY INCOME APPENDIX J ALICE COUNTY PAGES BIBLIOGRAPHY...227

8 EXECUTIVE SUMMARY Across Michigan, 40 percent of households struggle to afford the basic necessities of housing, child care, food, health care, and transportation. While it is well recognized that Michigan has faced daunting economic times with the decline of the auto industry and the Great Recession, the official poverty rate of 16 percent obscures the true magnitude of the financial instability in the state. The official U.S. poverty rate was developed in 1965, has not been updated since 1974, and is not adjusted to reflect cost of living differences across the U.S. A lack of accurate measurements and even language to frame a discussion has made it difficult for states including Michigan to identify the extent of the economic challenges that so many of their residents face. This Report presents four groundbreaking instruments that measure the size and condition of households struggling financially, and it introduces the term ALICE Asset Limited, Income Constrained, Employed. The Report includes findings on households that earn below the ALICE Threshold, a level based on the actual cost of basic household necessities in each county in Michigan. It outlines the role of ALICE households in the state economy, the public resources spent on households in crisis, and the implications of struggling households for the wider community. ALICE households are forced to make difficult choices... These savings threaten their health, safety, and future and they reduce Michigan s economic productivity and raise insurance premiums and taxes for everyone. Using realistic measures of the financial survival threshold for each county in Michigan, the Report reveals a far larger problem than previously identified. Michigan has 605,210 households below the Federal Poverty Level (FPL) but also has 930,503 ALICE households, which have income above the FPL but below the ALICE Threshold. These numbers are staggering: in total, 1.54 million households in Michigan fully 40 percent, and more than double the number previously thought are struggling to support themselves. ALICE households are working households; they hold jobs and provide services that are vital to the Michigan economy in positions like retail salespeople, team assemblers, truck drivers, and nursing assistants. The core of the problem is that these jobs do not pay enough to afford the basics of housing, child care, food, health care, and transportation. The growth of low-skilled jobs is projected to outpace that of medium- and high-skilled jobs into the next decade. At the same time, the cost of basic household necessities continues to rise. There are serious consequences for both ALICE households and their communities when these households cannot afford the basic necessities. ALICE households are forced to make difficult choices such as skipping preventative health care, accredited child care, healthy food or car insurance. These savings threaten their health, safety, and future and they reduce Michigan s economic productivity and raise insurance premiums and taxes for everyone. The costs are high for both ALICE families and the wider community. 1

9 MAJOR FINDINGS Who is ALICE? Four in 10 households in Michigan struggle to afford basic household necessities. Based on the most recent data from 2012, 605,210 households live in poverty and another 930,503 are ALICE households. Between the two categories, 1.54 million households in Michigan have income below the ALICE Threshold. ALICE households exist in all age groups. ALICE exists even in households headed by someone in their prime earning years, 25 to 64 years old. In fact, this age group represents the largest segment of ALICE households, reiterating the fact that most jobs in Michigan do not pay enough to allow families afford the most basic household budget. ALICE and poverty-level households are spread across all counties in Michigan. All counties in Michigan have more than 27 percent of households living below the ALICE Threshold. In addition, most towns (73 percent) have more than 30 percent of households living below the ALICE Threshold. In Detroit, 38 percent of households have income below the FPL and another 29 percent are ALICE households. ALICE households represent a cross-section of Michigan s population. Contrary to some stereotypes, ALICE households have a wide range of demographic compositions. As in Michigan s overall population, more than 77 percent of the state s ALICE households are White (U.S. Census terminology). However, due to wage discrepancies that disproportionately affect certain groups, it is not surprising to find female-headed households, Blacks, Hispanics, people living with a disability and recent unskilled immigrants over-represented in the population living below the ALICE Threshold. All counties in Michigan have more than 27 percent of households living below the ALICE Threshold. What is the gap between ALICE s household income and the cost of basic expenses? ALICE households are working or have worked. However, ALICE and poverty-level households earn only 39 percent of the income needed to reach the ALICE Threshold for basic economic survival. Public and private assistance is not enough to lift ALICE households to economic stability. The income of ALICE and poverty-level households is supplemented with $30.6 billion in government, nonprofit and health care resources. Despite these public resources, ALICE and poverty-level households remain 13 percent short of the income needed to reach the ALICE Threshold. What causes the prevalence of ALICE households? The cost of basic household expenses in Michigan is more than most jobs can support. Even though the cost of living in Michigan is among the most affordable in the U.S., a basic household budget is beyond what most jobs in the state can provide to working households. The annual Household Survival Budget for the average Michigan family of four is $50,345 and for a single adult is $16,818. These numbers highlight how inadequate the U.S. poverty designation is as a measure of economic viability, at $23,050 for a family and $11,170 for a single adult. The annual Household Stability Budget one that enables not just 2

10 survival, but self-sufficiency in Michigan is almost double the cost of the Household Survival Budget: $22,849 for a single adult and $92,409 for a family of four. Housing affordability, job opportunities, and community support worsened in all counties in Michigan through the Great Recession, as measured by the Economic Viability Dashboard. Michigan became less affordable from 2007 to Despite the Great Recession and the low rate of inflation, the cost of basic housing, child care, transportation, food, and health care in Michigan increased by 9 percent during this five-year period. Economic conditions worsened for ALICE households from 2007 to Housing affordability, job opportunities, and community support worsened in all counties in Michigan through the Great Recession, as measured by the Economic Viability Dashboard, a new index that tracks these three economic measures. Two years after the end of the Recession, conditions have improved but have not returned to 2007 levels. Finding both housing affordability and job opportunities in the same county remains a challenge for ALICE households. Michigan s housing stock does not match current needs. Across the state, there are not enough rental units that are affordable: there are almost twice as many renters with income below the ALICE Threshold as there are rental units that they can afford. At the same time, while there are housing units where ALICE households can afford the mortgage, these households do not have the down payment or do not qualify for a mortgage. What are the consequences of insufficient income for ALICE families and their communities? ALICE households suffer without sufficient income. When ALICE households do not have enough income, they have to make difficult choices to reduce their expenses. For example, if a family cannot afford child care in an accredited facility, they may substitute with an overworked neighbor or an inexperienced relative, jeopardizing their child s safety and learning opportunities. Other short-term strategies such as skipping preventative health care, home maintenance, or a bill payment may have longer-term penalties, such as poor health, fines, and larger bills in the future. Families with children are leaving Michigan. Higher income is especially important for families with children because of their greater budget costs. Without job opportunities in the state, one option is to move. From 2007 to 2012, the number of married-couple families with children in Michigan fell by 14 percent, the number of single female-headed households with children decreased by 5 percent, and single male-headed households with children decreased by 2 percent. 3 ALICE households pay more for goods and services. ALICE faces increased expenses through basic cost of living increases, as well as greater costs for using alternative financial products. Through the Great Recession and a period of low inflation, a time when the cost of most goods and services decreased, the cost of basic household necessities continued to increase. In addition, without access to mainstream borrowing, ALICE households in Michigan resort to using riskier financial options, such as payday lenders, Buy Here Pay Here car loans, and contract for deed home purchases. The whole community suffers when ALICE has insufficient income. When ALICE children are not ready for school, they add a burden to the educational system. When ALICE households cannot afford preventative health care, they are more likely to place future burdens on the health care system, increasing insurance premiums for all. When ALICE

11 workers cannot afford an emergency, let alone invest in their neighborhood, communities may experience instability, higher taxes, or a decline in economic growth. What challenges do ALICE households face in the future? In line with the national trend, low-income jobs dominate the economy in Michigan now and will continue to dominate in the future. As a result of changes in the job market over the last three decades, the Michigan economy is now more dependent on low-paying service jobs than on higher-skilled and higher-paying jobs. Sixty-three percent of all jobs in Michigan pay less than $20 per hour ($40,000 per year if full-time). Occupations with projected job growth have low wages and require minimal education. The most projected new jobs openings are in service jobs with wages below $15 per hour and requiring a high school education or less. These jobs including health care workers, retail salespeople, construction laborers, food preparation workers, and motor vehicle operators are projected to grow at double or triple the rate of medium- and high -skilled jobs over the next decade across Michigan. More seniors will become ALICE households. With a population that is aging ahead of the national curve, Michigan will have a higher percentage of seniors before other states do. As Michiganders who have used their savings and retirement to weather the economic downturn become seniors, many will also fall below the ALICE Threshold. More ALICE households will become family caregivers. At least one-third of Michigan s ALICE households currently include caregivers family members caring for ill or elderly relatives. That number will increase as the population ages, adding additional burdens to their household budget in both direct costs and lost wages, and reducing future employment opportunities. What would improve the economic situation for ALICE households? Public and private intervention can provide short-term financial stability. Short-term intervention by family, employers, nonprofits, and government can mitigate crises for financially unstable households and possibly prevent an economic spiral downward. For example, providing a month s worth of food for a family may enable a father to repair his car s transmission and get to work. If a family s primary earner cannot get to work, he might lose wages or even his job. Without regular income, the family cannot afford rent or mortgage payments and risks becoming homeless. Increased housing quality would provide stability for many Michigan families. The cost of basic necessities housing, child care, transportation, food, and health care is out of reach for many Michigan households. While the cost of housing per se is not high in Michigan, the units that are affordable to ALICE households are often older and in disrepair, so that upkeep and necessary repairs are unaffordable. Structural changes in the availability of quality affordable housing would ease the housing burden on many Michigan families. Short-term intervention by family, employers, nonprofits and government can mitigate crises for financially unstable households and possibly prevent an economic spiral downward. 4

12 Recognizing the magnitude of the number of households facing financial hardship, as well as the different types of households and problems they confront, will make more effective change possible. An improvement in income opportunities would enable ALICE households to afford basic necessities, build savings, and become financially independent. Reducing the number of ALICE households requires a significant increase in the wages of current jobs or in the number of medium- and high skilled jobs in both the public and private sectors in Michigan. Structural economic changes would significantly improve the prospects for ALICE and enable hardworking households to support themselves. Depending on how far a family s income is from the ALICE Threshold, different amounts of assistance will be necessary, but in many cases, different strategies may be needed altogether. Recognizing the magnitude of the number of households facing financial hardship, as well as the different types of households and problems they confront, will make more effective change possible. GLOSSARY ALICE is an acronym that stands for Asset Limited, Income Constrained, Employed, comprising households with income above the Federal Poverty Level but below the basic cost of living. The Household Survival Budget calculates the actual costs of basic necessities (housing, child care, food, health care, and transportation) in Michigan, adjusted for different counties and household types. The ALICE Threshold is the average level of income that a household needs to afford the basics defined by the Household Survival Budget for each county in Michigan. (Please note that unless otherwise noted in this Report, households earning less than the ALICE Threshold include both ALICE and poverty-level households.) The Household Stability Budget is greater than the basic Household Survival Budget and reflects the cost for household necessities at a modest but sustainable level. It adds a savings category, and is adjusted for different counties and household types. The ALICE Income Assessment is the calculation of all sources of income, resources and assistance for ALICE and poverty-level households. Even with assistance, the Assessment reveals a significant shortfall, or unfilled gap, between what these households bring in and what is needed for them to reach the ALICE Threshold. 5 Lastly, the Economic Viability Dashboard is comprised of three indices that evaluate the economic conditions that matter most to ALICE households housing affordability, job opportunities, and community support. A Dashboard is provided for each county.

13 INTRODUCTION Many Americans view Michigan as a post-industrial state, on par with the U.S. average, but with immense poverty concentrated in the recently bankrupt city of Detroit. Popular stereotypes of Michigan have focused primarily on the plight of Detroit following the decline of the auto industry. Yet Michigan s overall economic situation is more complex. According to the U.S. Census, Michigan is the only state in the country whose population declined over the last decade, running against national and regional trends. While Michigan s poverty rate is only one percentage point above the U.S. rate: 16 percent versus a national rate of 15 percent, the median annual income suggests a greater difference; at $46,859, it is 10 percent below the U.S. median of $51,371. However, because neither of these measures considers the actual cost of living in Michigan or the wage rate of jobs in the state, they do not fully capture the number of households facing economic hardship across all of Michigan s counties. Current measures hide the reality that 40 percent of households in Michigan struggle to support themselves. Because income is distributed unequally in Michigan, there is both great wealth and significant economic hardship. The top 20 percent of Michigan s population earns half of all income earned in the state, while the bottom 20 percent earns only 3 percent (see Appendix A). The real picture of Michigan, especially the magnitude of households that are severely economically challenged, has been difficult to gauge until now because there have not been appropriate measures or even language to describe this sector of the state s population. This Report fills that gap with new language and four new measures. This Report uses the term ALICE to describe a household that is Asset Limited, Income Constrained, Employed. As originally defined in the 2012 New Jersey ALICE Report, ALICE is a household with income above the Federal Poverty Level (FPL) but below a basic survival threshold, defined here as the ALICE Threshold. ALICE households are composed of women and men, young and old, of all races and ethnicities. The Report applies these ALICE measures to a state that is facing unique economic challenges, in order to better understand how and why so many families are struggling financially. REPORT OVERVIEW Who is struggling in Michigan? Section I introduces the ALICE Threshold: a realistic measure for income inadequacy in Michigan, which takes into account the current cost of basic necessities and geographic variation. In Michigan there are 1.54 million households 40 percent of the state s total with income below the realistic cost of basic necessities; 605,210 of those households are living below the FPL and another 930,503 are ALICE households. This section provides a statistical picture of ALICE household demographics, including race/ethnicity, age, geography, gender, family type, disability, language, and immigrant status. Except for a few notable exceptions, ALICE households generally reflect the demographics of the overall state population. In Michigan there are 1.54 million households 40 percent of the state s total with income below the realistic cost of basic necessities. 6

14 How costly is it to live in Michigan? Section II details the average minimum costs for households in Michigan simply to survive not to save or otherwise get ahead. While Michigan is considered affordable in comparison with other states, it is well known that the cost of living in the state easily outpaces Michigan s average wages. The annual Household Survival Budget quantifies the costs of the five basic essentials of housing, child care, food, health care, and transportation. Using the thriftiest official standards, including those used by the U.S. Department of Agriculture (USDA) and the U.S. Department of Housing and Urban Development (HUD), the average annual Household Survival Budget for a Michigan family of four (two adults with one infant and one preschooler) is $50,345, and for a single adult it is $16,818. These numbers vary by county, but all highlight the inadequacy of the 2012 U.S. poverty designation of $23,050 for a family and $11,170 for a single adult as an economic survival standard in Michigan. The Household Survival Budget is the basis for the ALICE Threshold, which redefines the basic economic survival standard for Michigan households. Section II also details a Household Stability Budget, which reaches beyond survival to budget for savings and stability at a modest level, yet is almost double the Household Survival Budget. With 63 percent of jobs in Michigan paying less than $20 per hour, it is not surprising that so many households fall below the ALICE Threshold. 7 Where does ALICE work? How much does ALICE earn and save? Section III examines where members of ALICE households work, as well as the amount and types of assets these households have been able to accumulate. With 63 percent of jobs in Michigan paying less than $20 per hour, it is not surprising that so many households fall below the ALICE Threshold. In addition, the housing and stock market crash associated with the Great Recession ( ), as well as high unemployment, took a toll on household savings in Michigan. Twenty-five percent of Michigan households are asset poor, and 39 percent do not have sufficient liquid net worth to subsist at the FPL for three months in the absence of income. How much income and assistance are necessary to reach the ALICE Threshold? Section IV examines how much income is needed to enable Michigan families to afford the Household Survival Budget. This section also compares that level of income to how much families actually earn as well as the amount of public and private assistance that they receive. The ALICE Income Assessment s that ALICE and poverty-level households in Michigan earn 39 percent of what is required to reach the ALICE Threshold, and resources from hospitals, nonprofits, and federal, state, and local governments contribute another 48 percent. What remains is a gap of 13 percent for families below the ALICE Threshold to reach the basic economic survival standard that the Threshold represents. What are the economic conditions for ALICE households in Michigan? Section V presents the Economic Viability Dashboard, a measure of the conditions that Michigan s ALICE households face. The Dashboard compares the housing affordability, job opportunities, and community support across the state s 83 counties. These conditions worsened significantly from 2007 to 2010 in all counties and have improved only slightly since. It remains difficult for ALICE households to find both housing affordability and job opportunities in the same location.

15 What are the consequences of insufficient household income? Section VI focuses on how households without sufficient income and assets to meet the ALICE Threshold survive. It outlines the strategies they employ and the risks and consequences both for themselves and for the rest of the community. The forecast for Michigan s economy is for more low-wage jobs and continued high costs for basic necessities, which means that ALICE households will continue to make up a significant percentage of households in the state. Conclusion Future prospects for ALICE households. The Report concludes by considering the implications of current trends Michigan s aging population, and the projected growth of low-wage and low-skilled jobs across the state for ALICE households. This section also identifies a range of general strategies that would reduce the number of Michigan households living below the ALICE Threshold. DATA PARAMETERS Because Michigan is economically, racially, ethnically, and geographically diverse, state averages mask significant differences between municipalities and counties. The ALICE measures presented in this Report are calculated for each county. For example, the 2012 annual Household Survival Budget for a family ranged from $43,540 in Lake to $61,149 in Livingston. The forecast for Michigan s economy is for more low-wage jobs and continued high costs for basic necessities, which means that ALICE households will continue to make up a significant percentage of households in the state. The ALICE measures are calculated for 2007, 2010, and 2012 in order to compare the beginning and the end of the economic downturn known as the Great Recession and any progress made in the two years since the technical end of the Recession. The 2012 results will also serve as an important baseline from which to measure both the continuing recovery and the impact of the Affordable Care Act in the years ahead. This Report uses data from a variety of sources, including the American Community Survey, the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Agriculture (USDA), the Bureau of Labor Statistics at the U.S. Department of Labor (BLS), the Internal Revenue Service (IRS), ChildCare Aware (formerly NACCRRA), and their Michigan state counterparts. State, county, and municipal data is used to provide different lenses on ALICE households. The data are s; some are geographic averages, others are one-, three- or five-year averages depending on population size. The report examines issues surrounding ALICE households from different angles, trying to draw the clearest picture with the range of data available. For purposes of this Report, percentages are rounded to whole numbers. In some cases, this may result in percentages totaling 99 or 101 percent instead of 100 percent. 8

16 I. WHO IS STRUGGLING IN MICHIGAN? Measure 1 The ALICE Threshold According to the 2012 Census, the federal poverty rate in Michigan is 16 percent, or 605,210 of the state s 3.8 million households. However, the increased demand for public and private welfare services over the last five years suggests that many times that number of the state s households struggle to support themselves. Until now, there has been no measure to define the actual level of financial hardship in each county across the country. The Federal Poverty Level (FPL) was developed in 1965, and its methodology has not been updated since In addition, it is not adjusted to reflect cost of living differences across the U.S. The lack of accurate information underreports the number of people who are poor, which in turn distorts the identification of problems related to poverty, misguides policy solutions, and raises questions of equality, fairness, and transparency. 9 There have been extensive critiques of the FPL and arguments for better poverty measures (O Brien and Pedulla, 2010; Uchitelle, 2001). The official poverty rate is so understated that many government and nonprofit agencies use multiples of the FPL to determine eligibility for assistance programs. For example, Michigan Healthy Kids and MiChild use 150 to 200 percent of the FPL to determine eligibility for their assistance programs. Even Medicaid and Children s Health Insurance Program (CHIP) eligibility across the country uses multiples of the FPL (National Conference of State Legislatures, 2014; Roberts, Povich and Mather, 2012). Recognizing the shortcomings of the FPL, the U.S. Census Bureau has developed an alternative, the Supplemental Poverty Measure (SPM), based on expenditures reported in the Consumer Expenditure Survey and adjusted for geographic differences in the cost of housing. However, the SPM statistic, though more complex than the FPL, is still too low to capture the extent of financial hardship in a county. The 3-year average SPM for Michigan is 13.5 percent, actually lower than the official poverty rate of 16 percent (Short, 2013; U.S. Census Bureau, 2010 and 2011). This is not only an academic issue, but a practical one. The lack of accurate information underreports the number of people who are poor, which in turn distorts the identification of problems related to poverty, misguides policy solutions, and raises questions of equality, fairness, and transparency. INTRODUCING ALICE Despite being employed, many individuals and families do not earn enough to afford the five basic necessities of housing, child care, food, transportation, and heath care in Michigan. Even though they are working, their income does not cover the cost of living in the state and they often require public assistance to survive. Until now, this group of people has been loosely referred to as the working poor, or technically, as the lowest two income quintiles. This Report uses a more precise term to define these households: ALICE Asset Limited, Income Constrained, Employed.

17 ALICE is a household with income above the official FPL but below a defined basic survival income. In Michigan, ALICE households are as diverse as the general population, composed of women and men, young and old, of all races and ethnicities. THE ALICE THRESHOLD In a state where the cost of living seems low, it is especially important to have a current standard that reflects the true cost of economic survival and compares it to income. The ALICE Threshold, a new measure, is a realistic standard developed from the Household Survival Budget, a second measure that s the minimal cost of the five basic necessities housing, child care, food, transportation, and health care (discussed fully in Section II). Based on calculations from the American Community Survey (ACS) and the ALICE Threshold, 1.54 million households in Michigan 40 percent are either in poverty or qualify as ALICE (Figure 1). ALICE is a household with income above the official FPL but below a defined basic survival income. Figure 1. Household Income, Michigan, 2012 Source: American Community Survey, 2012, and the ALICE Threshold The ALICE Threshold is calculated for each county in the state and adjusted for age by reflecting different household size 2.98 people for households headed by someone younger than 6s old, and 1.43 people for households headed by someone 6s or older. The ALICE Threshold for Michigan households headed by someone under 6s old ranges from $35,000 to $50,000 per year. The upper range is actually close to the median state household income of $46,859 per year. For older households, the ALICE Threshold ranges from $20,000 to $25,000 per year. ALICE Thresholds and the median income for each county are listed in Appendix J, ALICE Pages. Changes in household demographics are largely shaped by Michigan s tough economic climate and decline in overall population. The total number of households in Michigan decreased by 1 percent from 2007 to 2012, with the percent of households in all income categories also declining at the same rate. Among household income levels, however, there were significant shifts, especially during the Great Recession. From 2007 to 2010: The percent of households in poverty (i.e., at or below the FPL) increased by 15 percent The number of ALICE households increased by 0.28 percent The number of households above the ALICE Threshold decreased by 5 percent 10

18 By 2012, two years after the Recession technically ended: The number of households in poverty increased by another 6 percent The number of ALICE households decreased by 2 percent The number above the ALICE Threshold leveled off With households also migrating outside the state at this time, it is difficult to pinpoint whether households moved from ALICE into poverty or simply left Michigan. Figure 2. Households by Income, Michigan, 2007 to 2012 Households move above and below the ALICE Threshold over time as economic and personal circumstances change. ALICE households may be alternately in poverty or more financially secure at different points during the year. 11 Source: American Community Survey, 2012, and the ALICE Threshold Though not fully captured in these statistics, it is important to note that households move above and below the ALICE Threshold over time as economic and personal circumstances change. Nationally, the U.S. Census reports that from January 2009 to December 2011, 31.6 percent of the U.S. population was in poverty for at least two months. By comparison, the national poverty rate for 2010 was 15 percent (Edwards, 2014). Household income is fluid, and ALICE households may be alternately in poverty or more financially secure at different points during the year. ALICE BY COUNTY The number of overall households and the number of households living below the ALICE Threshold vary greatly across Michigan counties. For example, Keweenaw is the smallest county in the state, with 1,012 households, and Wayne is the largest, with 660,724 households. Keweenaw also has the smallest number of households below the ALICE Threshold with 367, while Wayne has the largest number of households below the ALICE Threshold with 323,780. Households living below the ALICE Threshold constitute a significant percentage of households in all Michigan counties (Figure 3). There is variation between counties in terms of overall magnitude as well as share of poverty and ALICE households: Below the ALICE Threshold: Percentages range from 27 percent in Livingston to 54 percent in Clare

19 Poverty: Percentages ranges from 7 percent in Livingston to 26 percent in Clare and Isabella counties ALICE: Percentages range from 17 percent in Marquette to 32 percent in Oscoda Figure 3. Percent of Households below the ALICE Threshold by, Michigan, 2012 While the demographic characteristics of poverty are well known due to U.S. Census data collection, those for ALICE households are not. Source: American Community Survey, 2012, and the ALICE Threshold DEMOGRAPHICS ALICE households have many shapes and sizes; there is not one type. In fact, the composition of ALICE households mirrors that of the population in general. There are young and old ALICE households, those with children, those with a family member who has a disability. They vary in educational level attained, race and ethnicity, and geographic location. These households move in and out of being ALICE over time. For instance, a young ALICE household may capitalize on their education and move above the ALICE Threshold. An older ALICE household may experience a health emergency, lose a job, or suffer from a disaster and move below the ALICE Threshold into poverty. While the demographic characteristics of poverty are well known due to U.S. Census reports, those for ALICE households are not. This section provides an overview of the demographics of ALICE households and compares them to households in poverty as well as to the total population. Except for a few notable exceptions, ALICE households generally reflect the demographics of the overall state population. Differences are most striking for those groups who traditionally have the lowest wages: women, racial/ethnic minorities, those with a disability, veterans, and unskilled recent immigrants. statistics for race/ethnicity and age are presented in Appendix B. 12

20 Many senior households continue to work, some by choice and others because of low income. Age There are ALICE households in every age bracket in Michigan. The number of households in poverty and ALICE generally reflect their proportion of the overall population, with the youngest households slightly overrepresented and the oldest underrepresented (Figure 4). Of Michigan s 3.8 million households: Those headed by someone under the age of 25 account for 8 percent of all households, 11 percent of households in poverty, and 5 percent of ALICE households Those headed by a 25- to 44-year-old represent 31 percent of all households, and 30 percent of both poverty and ALICE households Those headed by a 45- to 64-year-old represent 33 percent of the total, 47 percent of households in poverty, and 42 percent of ALICE households Those headed by someone 65 or older represent 28 percent of the total, 12 percent of households in poverty and 23 percent of ALICE households Figure 4. Household Income by Age, Michigan, 2012 Source: American Community Survey, 2012, and the ALICE Threshold When looking at the income levels within each age group, younger Michigan households are more likely to have income below the ALICE Threshold (Figure 5): For households headed by someone under the age of 25, one-third are in poverty and another 18 percent are ALICE households For households headed by a 25- to 44-year-old, 23 percent are in poverty and another 28 percent are ALICE households 13 While older households are less likely to be in poverty, they are just as likely to be ALICE: For households headed by a 45- to 64-year-old, 19 percent are in poverty and another 36 percent are ALICE households For households headed by someone 6s or older, 9 percent are in poverty and another 23 percent are ALICE households

21 Figure 5. Age by Household Income, Michigan, 2012 Source: American Community Survey, 2012, and the ALICE Threshold ALICE households in Michigan face specific challenges depending on age. Many senior households continue to work, some by choice and others because of low income. In Michigan s 65- to 69-year-old age group, 25 percent are in the labor force, as are 14 percent of Michiganders aged 70 to 74, and 5 percent of those 7s and over (American Community Survey, 2012). Interestingly, the comparatively low rate of senior households in poverty (9 percent) provides evidence that government benefits, including Social Security, are effective at reducing poverty among seniors (Haskins, 2011). But the fact that 23 percent of senior households qualify as ALICE highlights the fact that these same benefits often do not enable financial stability. Earning enough income to reach the ALICE Threshold is especially challenging for young households, especially in Michigan. As a result, this already small age bracket decreased by 9 percent from 2007 to Two main factors drove that decrease: some young workers moved in with their parents to save money, and others left Michigan to look for other opportunities (Vespa, Lewis and Kreider, 2013; Doyle and Gimarc, 2014). Race/Ethnicity While differences in race/ethnicity are often highlighted between households in poverty versus the total population, less is known about those who are struggling to afford the basics but earn more than the FPL. In fact, the race/ethnicity of ALICE households fairly closely mirrors that of the Michigan population as a whole (Figure 6). Eighty-two percent of Michigan s 3.8 million households are headed by someone who is White (U.S. Census classification), as are 77 percent of ALICE households. In fact, White households remain the majority in all income categories. Both Asians and Hispanics are The race/ethnicity of ALICE households fairly closely mirrors that of the Michigan population as a whole. 14